In April, the Consumer Financial Protection Bureau warned the industry of its plans to keep a much closer eye on servicers as they transition borrowers out of forbearance. On Tuesday, a report from the government watchdog may have just kicked up the incentive.
According to the report, in March 2021, consumers submitted more mortgage complaints to the CFPB than in any month since April 2018. Within those complaints, mentions of forbearance and related terms reached their highest monthly average since March and April of 2020, while the number of borrowers who reported struggling to make payments also rose.
Complaints ranged from not being able to reach their servicers, to misinformation or lack of information, to confusing and incomplete post-forbearance options.
Consumers also reported long delays in having their loan modified so that they could resume payments on the mortgage. According to the report, in some cases these delays were due to demands for additional documents by servicers. In other cases, consumers said servicers provided conflicting information about what options were available and the consumer’s eligibility for loan modification.
“More borrowers are behind on their mortgage than at any time since the height of the Great Recession,” said CFPB Acting Director Dave Uejio. “Communities of color have been hit hard by the pandemic, and the latest data show that many borrowers are still hurting. The CFPB will continue to seek and actively respond to developments in the market, doing everything in our power to help families stay in their homes. As we warned mortgage servicers last month, unprepared is unacceptable.”
The greater number of borrowers exiting forbearance right now also requires more labor from the servicers’ side given the Mortgage Bankers Association estimates 27% of exits since June of 2020 resulted in loan deferrals and partial claims.
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The CFPB pointed out FHA loans in particular as having complications when borrowers attempted making a partial claim or modifying their loan to address forborne payments. FHA loans have had the largest forbearance portfolio share for the better part of the pandemic, although portfolio and private-label securities recently took that title.
The sudden spike in complaints to the CFPB signaled a significant shift in the 2.23 million borrowers who are still postponing their mortgage payments in 2021.
In 2020, the CFPB’s Home Mortgage Disclosure Act data painted a profoundly different picture after the Bureau reported complaints against mortgage servicers were down by 3.5% year over year.
March marked a substantial milestone for forbearance as the one-year mark since the inception of the COVID-related program. It also marked the expiration of that forbearance for some homeowners, while those with government-backed mortgages had the option to extend their plans out to 18 months.
However, non–federally backed borrowers don’t all have the same policies. A number of these loans may be held in bank portfolios, where it is up to the bank’s discretion to offer the relief it feels is most appropriate. Others are owned by smaller investors or repackaged as a PLS, where these loans have differences in what kind of relief a borrower may receive.
Federally backed or not, the CFPB is already making good on its threats to police mortgage servicers. In late January, the agency released a series of authority actions warning servicers that they need to do right by consumers who need access to forbearance programs. On March 31, the CFPB rescinded seven of its temporary policies put in place due to COVID-19, and said it intends to exercise the full scope of its supervisory and enforcement authority provided under the Dodd-Frank Act.
In April, the CFPB began seeking comments on a proposal that if finalized would temporarily require servicers to enhance communications with borrowers who are delinquent or in forbearance, allow servicers to offer certain streamlined loan modification options to borrowers with COVID-19-related hardships, and require servicers to afford all borrowers a special pre-foreclosure review period.
By the end of the month, news that the Bureau was already actively investigating several servicers was released.